401(k) Professional tips to help you save for your future
Traditional 401(k) plans are employer-based retirement savings accounts funded through payroll deductions on a pre-tax basis, making them one of the easiest and most effective ways to save for your retirement. Those contributions lower your taxable income and help cut your tax bill. While the money is in your account, it is sheltered from taxes as it grows.
There are, however, limits on how much you can contribute.
Shelton Pro-Tip #3:
Know how to max out your 401(k) contributions.
Believe it or not, it’s the Internal Revenue Service that determines those limits, and it does so on an annual basis. The IRS actually reviews and sometimes adjusts the maximum contribution limits for 401(k) plans, IRAs, and other retirement savings vehicles each year, usually in November.
If you missed it, the IRS announced last year the maximum amount workers can contribute to a 401(k) for 2020 would be increased to $19,500 – a $500 bump from 2019. In addition, elective catch-up contributions that workers 50 and older can make is jumping to $6,500 from the previous limit of $6,000, bringing the elective deferral limit for those folks to $26,000 in 2020.
All of this, remember, is for elective deferrals. It does not include any matching contributions your employer makes on your behalf.
Here is how to take full advantage your 401(k) plan:
- Max out your contributions when you’re able. For each year, aim to hit the $19,500 limit.
- Once you turn 50, try to add another $6,500 to that limit annually while you continue to work.
- If your employer offers to match your contributions up to a certain amount, be sure to invest at least that much in your 401(k) each month. It’s free money.
Here’s the really good news: The money you contribute can usually be invested in a variety of great investment options. While the process may seem a bit overwhelming at times, it really isn’t. Check out our Shelton 401(k) Educational Videos to get you started and help you stay on track.
Bottom line: Do what you can to get as close to the maximum contribution possible, especially as you move closer to retirement.
Here’s to your success!